Part I of the Arbitration and Conciliation Act, 1996 (“1996 Act”) as was originally enacted was one of the most underrated statutory provisions in the post- Independence legal history of India. That it received brickbats unjustifiably from courts in several instances does not take away the ingenuity the way in which it was drafted. It was enacted about twenty three years ago in a different economic scenario where attracting foreign investment was of utmost importance and India had to be shown as a country which followed best international practices, such as of the Model Law on International Commercial Arbitration, 1985 (“Model Law”). So Part I of the Act was a virtual adoption of the Model Law with a few changes. These few changes were either changes in the Model Law position or were adopted from the Arbitration Act, 1940. This mixture of the Model Law and the laws of the previous regime that were sought to be overhauled have created curious situations. One such situation is the subject matter of this post.
Let us explain the situation with a hypothetical scenario: In a contract for sale of goods, the buyer discovers that there is a serious defect in the products three years and three months after the completion of sale and invokes arbitration as per the arbitration clause in the contract. The seller replies to the notice invoking arbitration rejecting the contentions by stating that the claim was time barred. An arbitrator is appointed and the buyer files a statement of claim. The seller files a statement of defence and argues that the claim is time barred. The seller files an application praying that the arbitrator should decide the limitation issue as a preliminary question. The arbitrator decides to do so. She hears both parties before making a decision.
Now the curious situation noted in the beginning of the post is that depending upon outcome of the arbitrator’s decision, the decision could either be called as an Interim Award or an Order! Yes. The very same decision would be an Interim Award if the arbitrator holds (finally) that the claim is not time barred (see, Indian Farmers Fertilizer Co-operative Ltd. v. Bhadra Products- 2018: SC). Consequently, the Interim award could be challenged under Section 34 of the 1996 Act. On the other hand, if the arbitrator holds that the claim is time barred, it is regarded as an “Order” and is amenable to appeal under Section 37(2)(a) of the 1996 Act.
Thus, this dichotomous position was the subject matter of a blog post in the Kluwer Arbitration Blog yesterday (7 January 2018).
The reason for this state of affairs is that the structure of Section 37 of the 1996 Act has been derived from Section 39 of the Arbitration Act, 1940. Section 39 employed the term “orders” and the same has been retained in Section 37 of the 1996 Act, which is the cause for confusion.
The decision of the Supreme Court in Indian Farmers clarifies this position, correctly, in the view of this blawgger, that a final determination on the limitation question is an Interim Award. The argument that an Award should be on the substantive aspects of the dispute does not, at least prima facie, have an attractive rationale. Take the case of a final determination accepting the plea of limitation on the claim but reserving the questions of counter-claims and costs or the case of an Interim Award rejecting the counter-claim on the grounds of limitation and reserving the question of the claims and costs for subsequent determination. In these cases, the decision regarding limitation would put an end to the dispute as regards the claim or the counter-claim as the case may be and would be called as Award, notwithstanding that such a decision is an “order” for the purposes of Section 37(2)(a). Neither the 1996 Act nor any justifiable principle frowns on calling such an “order” as an “Award”.
Therefore, the decision in Indian Farmers correctly clarifies the law. But to address this dichotomous position, it would do well to carry out the following amendments in Section 37 of the 1996 Act:
Clause(a) should be removed from Section 37(2) and clause (b) should be renumbered as Section 37(2) which would then read as: “(2) An appeal shall also lie to a court from an order of the arbitral tribunal (b) granting or refusing to grant an interim measure under section 17.”
Clause (a) should now be Sub-section 2A and “order” in Clause (a) should be “determination”. Section 37(2A) would now look as follows: “(2A) An appeal shall also lie to a court from a determination of the arbitral tribunal accepting the plea referred to in subsection (2) or subsection (3) of section 16;”
The heading of Section 37 should be changed from “Appealable orders” to “Appealable determinations”
If these amendments are carried out, whether a determination is an order or an Award will be determined by whether it is a final determination by a tribunal of a a point of controversy pertaining to the dispute that is not procedural in nature.
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